Why Behind-The-Meter Battery Storage Equals OpportunityBy Cas Biekmann | Tue, 06/22/2021 - 13:04
Q: Where have you seen opportunities in the Mexican market?
A: Battery storage can generally be split into two categories: Utility scale and behind-the-meter. Utility scale storage systems have two primary applications: energy shifting and frequency regulation, with the latter being the only part already economically viable at larger scales. For the most part, utility scale investments are interesting for the world’s biggest infrastructure companies that are looking to invest hundreds of millions in long-term projects. This cannot be done with smaller installations but are interesting for massive industrial customers and big energy users. The second category for behind-the-meter installations for peak shaving or micro grid applications is equally important. Taking a step back to ON Energy Storage’s objective, we aim to be the leader in battery energy software across Latin America. We have a leading position in Mexico and our objective is to maintain and grow that position.
In regard to how our software adds value, the primary driver for behind-the-meter storage solutions is a reduction of capacity charges, which make up 25 to 30 percent of the energy bill for C&I users. These charges are established in a way that makes so-called peak shaving possible, which is calculated based on peak hours during monthly energy use. To maximize revenue from peak shaving, batteries do not need that much energy. Optimal software can yield the necessary results with a smaller, cheaper system. You rarely want to install three hours or more of capacity for optimal ROI. Furthermore, our software can process consumption profiles and analyze how to optimize energy use beyond the peak shaving, so that returns are maximized. Writing an optimized code to optimize charging and discharging has taken us five years.
Q: How does your software set the company’s value proposition apart from the other players in the industry?
A: Some of the world’s biggest players in battery storage are concerned with constructing large projects, and with good reason because that is where the volume can be attained.
However, every market will have unique software based on the local tariff structures and regulations in those markets. We have created a platform that can be adjusted and tailored to other markets. People often look toward the most established names in the industry, but they fundamentally misunderstand that storage is not the components, it is the software. Component costs have a range of prices. Perhaps Fluence or Tesla can achieve economies of scale that provide a price advantage of around 10 to 15 percent. For larger applications, our software would not add much value creation differential in generating revenue, so choosing them would make sense. Behind-the-meter or with value stacking applications, the difference in costs is very low, but the difference that software can make in generating revenue is substantial. Backup energy, reactive power, adding capacity and energy are various possibilities, all optimized very differently than a simple 0.5MW frequency regulation project that only requires establishing where the frequency dead zone occurs. These large players do not focus on the possibilities or its adaptation in different markets like we can.
Q: Where does a behind-the-meter storage solution make the most sense?
A: Mexico does not have a regulation that boosts storage development, even though a proposal was created. This has created a longer time frame for battery storage to take off in Mexico’s market. However, the possibility to construct solutions behind-the-meter does exist because there is no regulation to stop this from happening. Because no energy flows into the grid, you do not need a connection permit. This also insulates these solutions from potential regulatory changes.
As to where battery storage behind-the-meter aimed at peak shaving makes sense, we have mapped the entire Western Hemisphere and presented it in a study. It is a function of capacity price and the number of hours one would need to shave effectively. There are two markets where the solution makes sense: Mexico and Peru. Here, capacity prices are high and the number of hours where you need to discharge are limited, between two to four hours a month depending on tariffs and the season in Mexico. Talking to industry insiders, distributed generation (DG) is the future. People will migrate increasingly to a system where energy is generated at the point of consumption. Other leading executives in the battery storage industry also see software as the core of the solution: the commodity might make up the bulk of the cost but the opportunity is in its revenues. Battery storage can do everything thermal energy can, some of it even better because it delivers power immediately.
Furthermore, battery storage could enter Mexico from the grassroots bottom and work its way up. There are many rural communities and places in the country that have power quality problems. Smaller, modular battery storage therefore makes a lot of sense. I even believe we could see CFE taking on a battery storage tender project within the next two years. Large hybrid projects from private power producers are somewhat unlikely in the short to medium term, however.
Q: How could battery storage benefit CFE’s efforts to make the national grid more efficient?
A: Transmission deferral is one of the main grid-level applications for battery storage. A transmission line delivering hydropower from Tabasco to Yucatan is very saturated in the peak summer season, so in this area battery storage would already be viable. Natural gas reaching Yucatan is already somewhat polluted with nitrogen and there are only a few combined cycle power plants in operation. This is not enough in terms of capacity, so the peninsula ends up dispatching fuel oil during these peak hours in the summer, which makes little sense both economically and especially environmentally. The problem is that due to the efforts to turn back the 2014 Energy Reform, CFE does not seem to be aligned with an optimal long-term vision for the energy sector.
Q: How is the company planning to roll out behind-the-meter battery storage in Mexico in 2021?
A: ON Energy Storage has closed three projects in the Mexican market, two of which are innovative in very different ways, other than the core software. We completely financed and will install a storage system for a hospitality player in Yucatan that will pay a monthly fee for our service. This is revolutionary because we can offer our solution to solvent clients without any upfront investment. The project will be operational by the end of July 2021.
For the second project, we are designing peak shaving solutions with UPS Inverters. These inverters are aligned with the grid, so all client electricity consumption comes through inverters. They will use battery energy during peak hours and have an optimally filtered power quality. This type of value stacking of battery storage serving as backup and power factor correction adds many benefits. How you transition between these types of services is a software problem. It all depends on what the client values most, making these projects complicated in their customization. However, there is much demand for such solutions and larger players are not willing to customize, so this yields opportunity for ON Energy Storage as a capable turnkey solutions provider. We also offer more off-the-shelf solutions for peak shaving, hybrid projects for micro grids and engineering for combined cycle projects to free up capacity. Our goal is to have the deepest portfolio available for Mexican and Latin American customers in the C&I segment.
ON Energy Storage is a multinational company providing turn-key battery storage system integrated with propietary software to ensure optimal efficiency. The company is constructing several behind-the-meter solutions in Mexico, but is equally comfortable with utility-scale storage.